How to start investing in property

There are many steps involved in starting to invest in property, but one key step you can’t overlook is planning. Property investment is a huge financial commitment, and your portfolio should be something that will make you wealthy down the line, so take the time to properly research the house you’re buying.

Consider consulting a financial adviser or mortgage broker if you need help getting started in property investing.

• Apartments vs houses: which to invest in?
• How to buy multiple investment properties?
• Do you need landlord insurance?
• Should you try hosting on AirBnb?
• What home loan is best for investment property?
• Getting an investment home loan
• Pros and cons of interest-only home loans
• Tax benefits for property investors

Low rate investor home loans

Below are some low variable rate home loans for property investors this month.

Apartments vs houses: which to invest in?

If you’re buying an investment property, the house versus apartment versus townhouse question is quite different. It comes down to your overall investment strategy and your goals. When you’re considering purchasing a property as an investment, rental income and capital growth are the two key things to keep top of mind.

As a general rule, houses tend to generate better long-term capital growth, while apartments tend to generate better rental returns. However, much of this is dependent on the state of the property market and the economy.

How to buy multiple investment properties

If you already own a house, investment or otherwise, you can use the equity in your first property to buy a second property. By building up substantial equity, you can then refinance your home loan to put down a deposit on a second property. You could do this multiple times over the years to build a strong property portfolio.

Do you need landlord insurance?

Landlord insurance is a type of insurance policy specifically designed to protect those who own investment properties from the risks that come with renting it out. It generally covers events that cause a loss of rental income, theft or damage to your property.

There is no one set premium for landlord insurance policies. The cost of a policy is determined by a very broad range of factors like:

• The value of your property and the contents within
• The type of property you have
• The structural integrity of the property
• Your claims history
• The location of the property
• The security of the property
• The state you live in
• Additional inclusions

Should you try hosting on AirBnb?

Airbnb is a community-driven and moderated marketplace where hosts advertise their spare space to potential short-term renters.

With over nine million spare bedrooms in Australia (according to the last census) and the cost of home ownership only going up, it makes good financial cents (see what we did there) to use your home to pay down your mortgage sooner and pocket the savings.

It’s free to list your space on Airbnb, but Airbnb charges a 3% host service fee which is deducted from the booking subtotal (it can go up to 5% if you’ve got a strict cancellation policy).

Airbnb will send hosts their money, via the payment option selected, 24 hours after check-in time.

What home loan is best for investment property?

There’s no one ‘best’ home loan for investment properties – there are hundreds of home loan products available for investors right now. But generally, a good home loan for an investment property should have:

• A low, competitive interest rate
• Interest-only and line of credit loan options
• The ability to ‘split’ your rate between variable and fixed
• Low upfront and ongoing fees
• An offset account attached

Getting an investment home loan

An investment home loan is a home loan for people looking to buy a property with the intention of renting it out and profiting through a rise in the property’s value. Home loans for investment property are different from the home loans you might use to buy a house or unit to live in – those are known as ‘owner-occupier’ home loans.

Interest rates

Investment home loans tend to come with higher interest rates – this is partly because property investors are generally considered to be riskier borrowers than owner-occupiers. It’s also because APRA (The Australian Prudential Regulation Authority) recently had a growth cap imposed on the amount of investment lending that ADIs (Authorised Deposit-taking Institutions) could conduct, however, this cap was lifted in July 2018.

But if you spend the time to do some research – and you should if you’re taking out a home loan – you’ll see that there are still home loans out there for investors with rates below 4%.

Our home loan repayment calculator shows that the difference between a 4% and a 5% interest rate on a $500,000 home loan is over $300 per month and $100,000 over 30 years. That difference speaks for itself really.

Fees

Just like a regular home loan, investment loans can sting you with fees if you aren’t careful. These fees can be anything like:

• Upfront fees (the fee charged for assessment and taking out the loan)
• Ongoing fees (charged by lenders for continuing to provide the loan)
• Exit, break and discharge fees (fees charged when the loan ends or when you switch to another lender)
• So when comparing investment home loans, don’t just look at the advertised interest rate – consider the fees as well.

Keep in mind that upfront and ongoing fees are factored into a loan’s comparison rate, which every law-abiding lender must display beside the advertised rates of their products. So if you see a loan with a low advertised interest rate, but a relatively high comparison rate, it probably has high fees to make up for the lower interest rate.

Pros and cons of interest-only home loans

Interest-only home loans are great for investors who plan to profit by selling their properties within the IO period (eg. after making a capital gain) because it reduces their expenses (and relative cash outflows). Nevertheless, it pays to be aware of the benefits and disadvantages of this type of mortgage.

Pros of interest-only home loans:

• Repayments at the start of the loan will be lower
• You can transition into higher repayments slowly
• You can get your foot in the door sooner
• Interest on investment properties is tax deductible, so you can get a tax refund on your repayments without paying the principal

Cons of interest-only home loans:

• Some lenders don’t offer interest-only loans
• They can cost more over time, since you aren’t paying off any of the principal at first
• You can grow accustomed to lower repayments
• You can risk not building equity in the property

Tax benefits for property investors

The Australian Taxation Office (ATO) lists several investment expenses that investors can claim a tax deduction on, such as:

• Interest paid on the loan
• Home, contents and landlord insurance
• Maintenance and management costs
• Council rates and construction costs
• Depreciation of the property’s value
• Travel expenses to the property in order to carry out inspections or maintenance

You should speak to a registered tax agent about the tax implications of buying an investment property.

Investor home loans.
Rates from 2.69% p.a.

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